World leaders will still talk trade at the G7. They ‘can't afford not to'

Yahoo

12 hours ago

President Donald Trump and other heads of state are set to gather in Canada for the annual G7 summit just days after Israel's unprecedented strike on Iran. Ordinarily, such a development would dominate the high-level discussions, but this time around, world leaders will likely need to also focus on another pressing issue: trade.
'You can't afford not to talk about it, from any country's perspective,' said Josh Lipsky, chair of international economics at the Atlantic Council.
It's less than a month until July 9, President Donald Trump's self-imposed deadline for when dozens of countries, including several present at the meeting, could face higher tariffs unless they ink trade deals that avert further escalation.
If no trade deal has been negotiated before that deadline, it's unclear whether Trump would revert to imposing his so-called 'reciprocal' rates — some of which were as high as 50% — or whether countries could face even higher rates. Trump also raised the possibility of extending the pause even further, though Treasury Secretary Scott Bessent testified last week that may only be offered for countries 'who are negotiating in good faith.'
'They are not going to throw out the [G7] agenda unless the security situation becomes world-threateningly grave,' Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics, said, referring to conversations world leaders are likely to have at the summit revolving around trade.
Already, the 10% tariff Trump levied on practically every country's exports to the US, and the extra 50% tariff on steel and aluminum and 25% on cars, is starting to take a toll on some foreign countries' economies.
For instance, United Kingdom data published last week indicated its economy in April shrank at rates not seen in nearly two years as exports to the US fell by a record amount.
And it may only be a matter of time before other economies take a hit, with the World Bank projecting the weakest decade of global economic growth since the 1960s, according to a report the group released last week citing Trump's trade policies as a major catalyst.
In particular, the World Bank predicts the US and Europe will suffer some of the sharpest growth declines compared to what it forecast earlier this year as a result of reduced trade and uncertainty regarding tariffs, which are expected to stymie economic activity.
There's little doubt every world leader traveling to the summit in the Canadian Rockies would like to depart with a plan to avoid facing higher tariffs. But it's less certain whether that will happen.
On a Friday call with reporters previewing Trump's agenda for the summit, a senior US official said trade, among other topics, including international security, will be discussed.
'The president is eager to pursue his goals in all of these areas, including making America's trade relationships fair and reciprocal,' the official said.
Already, Japan's Prime Minister Shigeru Ishiba told reporters on Friday his one-on-one meeting with Trump at the summit will center around ongoing trade negotiations.
But Lipsky isn't holding his breath for a trade deal announcement with Japan, or any other country present at the meeting. (In addition to leaders from G7 countries — Japan, the US, the UK, France, Germany, Canada and Italy — leaders of the European Union, Australia, India, Brazil, Mexico, South Korea, South Africa and Ukraine will also be attending.
'Even if they're close to one, I don't think it makes sense in front of your colleagues to say, 'Here's the baseline I created with the Trump administration,' and give him that leverage point toward them.'
That said, he's anticipating Trump and Ishiba could convey that they're close to finalizing a deal.
Discussions with the EU are shaping up to be the biggest wild card. Two weeks ago, Trump threatened to hike tariffs to 50% on EU exports to the US at the start of this month, saying discussions with EU leaders were 'going nowhere.' Then, after speaking with EU Commission President Ursula von der Leyen days later, he backed off.
'Countries would be happy to reach some deal with the US that lowers tariffs and involves some concessions that they can live with,' Obstfeld said. But the EU is 'certainly not going to modify their VAT (value-added tax) to get a deal with US.' Trump has repeatedly demanded the EU abandon these taxes, which he claims unfairly hurt American exports there.
Even though Trump will probably meet with France's President Emmanuel Macron, Germany's Chancellor Friedrich Merz and Italy's Prime Minister Giorgia Meloni following their recent visit to the White House, trade isn't likely to be a major topic of discussion with them, given von der Leyen is the lead negotiator, said Lipsky. 'This creates a strange dynamic during the meetings.'